<p>
  When you are the buyer of an option you have three ways to deal with your options.
</p>
<ul>
 	<li>You can close out the position at any given point prior to expiration (For buyers, write options and for sellers, buy options);</li>
 	<li>Wait until the expiration date and out-of-the-money options will become worthless;</li>
 	<li>Exercise the options which are in-the-money, resulting in a trade of the underlying stock (The seller will be assigned the obligation to sell or buy the underlying stocks)</li>
</ul>
<p>
  For all of those methods, closing out an option in the market is the most frequently used method. At the expiration, you need to deal with the option exercise if you long the options. If you short put or call options, you have to think about the assignment.
</p>
<ul>
 	<li><strong>Exercise:</strong> Exercising option means that the option holder executes the right to buy or sell the underlying assets at the strike price.</li>
 	<li><strong> Assignment: </strong>When an option is exercised by the option holder, the option writer will be assigned the obligation to deliver the terms of the options contract. This is called the option assignment.</li>
</ul>
<p>
  To be concrete, if you write a call option and the option holder decides to exercise, then you must sell the obligated quantity of the underlying security at the strike price to the option holder. Suppose you hold the underlying shares while writing the call option (covered call), those shares would be transferred from you to your counterpart. If you do not hold those shares in your account (naked call), you would then short those shares and deliver them to your counterpart. In another case, if you short a put and the holder decides to exercise, then you must buy those shares. You would now long shares in your account and don't hold options.
</p>
